Tristan Yang’s Post

Opportunity cost is an important concept in economics that refers to the value of the next best alternative you give up when making a choice. In simple terms, it’s what you miss out on when you pick one option over another. This applies to both personal and business decisions, highlighting that every choice involves trade-offs. For instance, you might choose to spend money instead of saving it, rent instead of buying a home, or pursue higher education instead of starting to work. Each choice has its own advantages and disadvantages, and the opportunity cost is what you lose by not selecting the other option. By thinking about opportunity costs, you can make better decisions by considering both obvious and hidden costs, helping you maximize your overall benefits. This concept emphasizes that resources like time, money, and effort are limited, so each decision should be made with care, weighing what you are giving up. Understanding these trade-offs is vital for making choices that align with your long-term goals. #FinancialIndependence #FinancialPlanning

Why do people do what they do? Over the past 20 years, the science of Behavioural Economics has become a major asset to the business world as its greatest contributors have revolutionised our vision over consumers and their decision-making logic. In its early stages, this science was further extrapolated to other areas; macroeconomics, marketing, advertising, finance... 🧠 The latter specially caught my attention as I always believed finance was rigidly ruled over the logic of numbers alone. However, once I had the chance to dive into corporate finance, I was soon proven wrong. Numbers are essential, however they do not sovereignly rule the industry, for in some cases numbers can be used to rationalise irrational choices. 🚫 How do the intricacies of the irrational human mind affect finance? 📊 What is the cost of this irrationality? 💲 What can we do to overcome them? 📈 Lessons from Robert J. Shiller, Hersh Shefrin and George Akerlof teach us about both individual and institutional investors. However, one of the most gargantuan pieces of the puzzle, corporate finance, remains widely unexplored. 🔍 In an attempt to contribute to this matter and start filling the loophole through my masters thesis, I decided to study how the human mind works in one of the most dynamic disciplines in corporate finance: mergers and acquisitions, an area that offers the optimal conditions to use as a starting point for this study. 🏦 The identification of different systems of thought, heuristics, cognitive biases, decision architecture inefficiencies, nudges, and overal irrationalities in this kind of deals offers the consolidation of a great guide to overcome these same inefficiencies caused by the human mind. 💭 During the next few weeks I hope to give you some of the insights I collected from my study, directly achieved through exhaustive financial analysis, decision architecture design, journalism, and what I consider to be some of the best literature in the field of Behavioural Economics. 🌱

Thinking Fast and Slow - Six Lessons With the recent passing of Nobel laureate psychologist Daniel Kahneman, some investors are revisiting his late work, ‘Thinking Fast and Slow’. That book described two modes of thinking – one fast and intuitive and the other slower and more deliberative. As an investor, it is the former that can lead to bad decisions. Here are six key lessons from the book. https://bit.ly/3Rbe3mN #knightswoodhouse #financialadvice #financialplanning

#Learning 🚨Take a look at this article about value for money. It explores how to assess the balance between quality and cost and the #5Es Key points include evaluating quality, comparing costs, and considering long-term benefits.

Unveiling the Mysteries: Decay of Systematic Investment Strategies In the dynamic world of finance, a perplexing question lingers: why do published #investmentstrategies often lose their edge? A compelling study by Antoine Falck, Adam Rej, and David Thesmar investigates this decline, seeking to uncover the reasons why well-known strategies fade once they become public knowledge. This study's primary objective is to dissect the factors contributing to the diminished performance of investment strategies after their details are unveiled in academic journals. As #investors increasingly leverage published strategies, this understanding is vital. The authors embark on this quest by examining a dataset of 60 #published investment strategies, rigorously analyzing their performance before and after publication. The study employs a comprehensive approach, considering factors like arbitrage opportunities, overfitting indicators, and the influence of the publication date itself. The authors analyze a dataset of 60 published strategies, tracking their performance before and after publication. They consider #arbitrage (where profitability is eroded by new capital), #overfitting (where strategies excel in-sample due to excessive testing), and the influence of the publication date itself. A striking revelation is the #correlation between publication date and performance decay, accounting for 30% of the variance. This suggests finding lasting strategies becomes harder over time, with a 5 percentage point increase in Sharpe ratio decay per year for newly published strategies. Furthermore, overfitting stands out as a major issue. Strategies with complex calculations and sensitivity to data outliers exhibit sharper post-publication declines. Regression analysis reinforces this, with overfitting variables adding a significant 15% explanatory power to the model. The study concludes that the pursuit of novel strategies in #academia could be inadvertently leading to overfitted models that don't hold up in real #financialmarkets. Rigorous out-of-sample testing and skepticism toward in-sample success are essential. Falck, Rej, and Thesmar's work provides crucial guidance for academics and investors alike. It highlights the need to prioritize sustainable strategies that endure beyond initial publication. Link to the paper: https://lnkd.in/dbmmJVYp

Let's talk about the concept of value. I can't overstate the importance of understanding why we choose A over B (all other things being equal), as it applies to every single human action. As some of you know, I've studied economics from the Austrian School. I do believe, among other concepts, this school provides the most accurate approach when it comes to define value. In a word, value is SUBJECTIVE. Let me expand on this: 1. The Austrian concept of value is subjective, not objective. Each individual assigns value based on personal preferences, making it impossible to establish a universal "just price." 2. Attempts to find objective measures of value (like a yardstick or balance) are futile, as value is not an inherent quality of an item but rather a personal assessment. 3. It is not necessary for two people to agree on the value of an item at any given time. Such agreement, if it occurs, is coincidental and does not reflect objective value discovery. 4. Each person's valuation of an item is influenced by a wide range of factors, many of which are unique and deeply personal, making it difficult to fully explain or understand another's valuation. 5. Intrinsic qualities of items, such as age in cheese or eggs, can affect value, but their impact varies among individuals and is only one part of the overall value determination. 6. The search for a universal and objective measure of value is misguided, as evidenced by the fact that consumers and sellers rarely consider factors like labor costs when making purchase decisions. 7. Factors like labor input do not determine the value of an item, as their influence on price is indirect and not directly considered by consumers or sellers. 8. The Austrian concept of value emphasizes the importance of personal valuation and the subjective nature of value, which is not determined by objective measures or the cost of production. 9. This concept challenges the idea that value can be objectively measured or calculated, instead proposing that value is a complex and deeply personal assessment. 10. By understanding the subjective nature of value, individuals and businesses can better understand the motivations behind consumer behavior and make more informed decisions in the market.

https://lnkd.in/gvM2dZ-3 We are losing great minds in investing at a terrible pace. We lost Harry Markowitz and Byron Wien last year. This week we lost the academician that led me to the most success in my 40 year investment career. Daniel Kahneman, a psychology professor, won a Nobel Prize for his (and collaborator, Amos Tversky's) research on how people deal with uncertainty. The large answer is that we do so irrationally. In this brief interview with Jason Zweig, whom together would write the seminal book, Thinking, Fast and Slow, Dr. Kahneman discusses the basic premises of his work. Hopefully, if you are not already familiar with his work, this will lead you to explore his work and increase your success, no matter the field of your expertise.

"The best maths you can learn is how to calculate the future cost of a current situation." Wisdom at its finest! It reflects the importance of strategic thinking and foresight, especially in decision-making. Being able to assess the future implications of current actions or choices can help one make wiser moves and avoid potential pitfalls. In essence, it's about understanding opportunity costs, risks, and the potential return on investment, not just in money but in time and effort as well. Real-life applications: 1. Financial planning (savings, investments, debt) 2. Career choices (education, skills, networking) 3. Health and wellness (lifestyle choices, habits) 4. Business and entrepreneurship (market analysis, strategy) Here are some key takeaways: 1. Consequences of choices: Every decision has a future cost. 2. Critical thinking: Evaluate potential outcomes before acting. 3. Long-term perspective: Consider how today's choices impact tomorrow. 4. Financial literacy: Understand compound interest, investments, and expenses. #FinancialIntelligence #CriticalThinking #SuccessMindset #ProfessionalGrowth #GoalSetting

Book Review Of 'THE WORLD IS FLAT' by Thomas Friedman In 'The World Is Flat: A Brief History of the Twenty-First Century', Thomas Friedman offers an insightful look into globalization during the early 21st century. Originally published in 2005 and later updated, the book explains how advancements in technology, communication, and trade have come together to create a "flat" world, where traditional geographical and economic barriers are increasingly blurred. Friedman outlines ten "flatteners" that have fueled this change, such as the fall of the Berlin Wall, the emergence of the internet, and the outsourcing of jobs to nations like India and China. He contends that these factors have democratized access to information and economic opportunities, allowing individuals and businesses around the globe to compete in ways never seen before. One of the book's notable strengths is its accessibility; Friedman skillfully combines personal stories with data and analysis, making complex ideas easier to grasp. His engaging writing style, often laced with humor, keeps readers engaged, even when discussing intricate economic theories. However, the book has been critiqued for its overly optimistic perspective on globalization, with some critics arguing that it neglects significant issues like economic inequality and environmental harm. While Friedman does recognize certain challenges, his emphasis tends to favor the positive aspects, which can oversimplify a multifaceted issue. Despite these criticisms, 'The World Is Flat' prompts readers to reflect on the effects of globalization on culture, economics, and society. Friedman stresses the importance of education and adaptability in a swiftly evolving world, underscoring the need for innovation and lifelong learning. In conclusion, Friedman’s work acts as both an introduction to globalization and an outcry for individuals and nations alike. His insights remain relevant today, encouraging contemplation of our interconnected world and the responsibilities that accompany it. (Dr. Sandeep Narula)

Excited to share the recent publication of our paper “Information and context matter: debiasing the disposition effect with lasting impact”, co-authored with Tom Huang in Frontiers. The publication is based on Tom's brilliant MSc dissertation at the PBS Department at The London School of Economics and Political Science (LSE). In a repeated measure experiment with 132 UK participants, we investigated how informational feedback-like interventions could help investors overcome the tendency to sell winning investments too early and hold onto losing ones for too long. Our findings show a promising reduction in this bias immediately after the intervention and a somewhat lasting effect after two weeks, though the impact fades by the three-month mark. By understanding and addressing behavioural biases, we can potentially enhance investment returns and empower investors to make better decisions. Overall, our study shows a promising intervention that may be readily deployed among retail investors with a somewhat lasting impact to mitigate the disposition effect. However, our study also shows that the relationship between the disposition effect and investment returns is nuanced. To find out more about our research please reach out to us or have a look at the paper (free access) here: https://lnkd.in/eKwpvMft #BehaviouralFinance #InvestmentBehaviour #DispositionEffect #FinancialMarkets #AcademicResearch